BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 3/2004:
Price variability and the speed of adjustment to the law of one price: Evidence from Slovakia
Julius Horvath ()
and Stanislav Vidovic
Abstract: This paper uses a large panel data set of monthly
frequency final good and service prices in thirty-eight Slovak districts
over a five-year period to study price variability and the working of the
law of one price. We concentrate on three issues. First, using simple
statistical tools, we investigate the range of price differences across
Slovak districts. Second, we measure relative price variability across
cities and across products. The variability of relative prices in the same
district appears to be higher than the variability of prices of the same
good across different districts. We identify the factors likely to be
responsible for this fact. Third, using benchmarks we investigate the speed
of convergence to the absolute law of one price. While we find evidence for
absolute convergence, the speed is lower than that found in US cities. The
speed of convergence to the relative law of one price is considerably
higher.
43 pages, February 26, 2004
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